Pidilite Industries (NSE:PIDILITIND) Is Increasing Its Dividend To ₹10.00

Pidilite Industries Limited (NSE:PIDILITIND) will increase its dividend from last year's comparable payment on the 9th of September to ₹10.00. Despite this raise, the dividend yield of 0.4% is only a modest boost to shareholder returns.

Check out our latest analysis for Pidilite Industries

Pidilite Industries' Dividend Is Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Pidilite Industries was earning enough to cover the previous dividend, but it was paying out quite a large proportion of its free cash flows. The business is earning enough to make the dividend feasible, but the cash payout ratio of 88% indicates it is more focused on returning cash to shareholders than growing the business.

The next year is set to see EPS grow by 83.4%. Assuming the dividend continues along recent trends, we think the payout ratio could be 25% by next year, which is in a pretty sustainable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the dividend has gone from ₹1.90 total annually to ₹10.00. This means that it has been growing its distributions at 18% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Has Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Pidilite Industries has impressed us by growing EPS at 7.2% per year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Pidilite Industries will make a great income stock. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Pidilite Industries has been making. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Pidilite Industries that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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